Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a. What is the total gain, in present value terms, from the merger? a. $500,000 b. $150,000 c. $1,500,000 d. $1,000,000 e. None of the above
Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a. What is the total gain, in present value terms, from the merger? a. $500,000 b. $150,000 c. $1,500,000 d. $1,000,000 e. None of the above
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 17MC
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Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a.
What is the total gain, in
| a. |
$500,000 |
|
| b. |
$150,000 |
|
| c. |
$1,500,000 |
|
| d. |
$1,000,000 |
|
| e. |
None of the above |
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